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In this paper, we study the local dial-up Internet access market using a game theoretic model. In
particular, we consider the Nash equilibrium of the service providers and examine their behavior
on investment and output level. We calibrate this model to fit the industry structure and data
found in rural markets. In the first part of the paper, we examine the Internet industry structure
and its characteristics. In the latter part of the paper, we create an abstract Cournot duopoly
model, in which real world cost and revenue projection will be used to find an Internet access
market equilibrium and its social welfare. These analyses allow us to explain the motivation for
the ISPs' behavior, such as over-subscription and under-investment. Finally, we will present an
analytical framework for the Internet industry policy maker. |
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